Credit cards can cost the consumer dearly, or they can be cost free. It is entirely dependent on how much attention is paid to the small print when applying for a card and how it is used once obtained. Every credit card has some kind of fee but these can be avoidable if one is aware of them. It is thus important to pay attention to the fees outlined in the terms and conditions before selecting a card, rather than simply reading no further than the initial card offer. There are no hidden fees, though they can be buried in the small print.
Typical costs which are applied include interest rates, annual fees, foreign transaction fees, balance transfer fees, cash advance fees, and penalty charges. Thus frequent travelers can take advantage of cards which are free of overseas charges, whilst those who habitually carry a balance should seek out cards with low introductory interest rates.
Annual percentage rates can lead to high costs when cardholders make the basic mistake of only paying attention to the headline advertised rate. Whilst a card may appeal due to a low introductory rate it is important to understand that this can be replaced with a penalty rate if payments are made late or credit limits exceeded. Another point to be aware of is when the introductory period ends and transitions to the standard variable rate, this is dated from the time the account is opened and not from when the card is first used.
The most common reason why cardholders accrue credit card debt is by running a balance which then accrues interest. Paying only the minimum payment can be a recipe for disaster and credit card statements must now illustrate the amount of time it would take to repay a debt at through only minimum payments. The only time it makes sense to carry a balance is on a zero percent APR card, otherwise all credit card spending incurs interest.
Many cardholders get stung by the cash advance APR which is typically in double digits. All cash advances incur interest at this higher rate from the moment the cash is obtained, with no grace period applied. When the actual fee for utilizing a cash advance is included the costs run up quickly. Cardholders can avoid incurring these costs by avoiding cash advances altogether and withdrawing cash via a debit card. To keep cost low one can search out a credit card which offers just one APR for all transactions, such as the Citi Simplicity MasterCard.
There is no need for consumers to pay annual or monthly fees to a credit card provider, unless a secured card is required to either build or re-establish a credit rating. Even then costs will vary considerably between providers so it is always recommended to comparison shop online to find the best deals.
Balance transfer fees have increased across the board and usually run to 4% – 6% of the balance transferred. Cardholders should calculate if the fee still allows for a good saving to be made. In most instances a zero percent introductory offer actually costs around 4%, which still represents an excellent deal for anyone carrying a balance which currently attracts a double digit interest rate.
Late fees and penalty interest rates should be avoided at all costs. As well as incurring charges the cardholder puts their credit score at risk by failing to pay on time. The simplest way to ensure payments are made on time is to establish an automated monthly payment to the card provider to ensure there is no chance of paying late.
Most credit card costs can be avoided by responsible use of credit and by an awareness of what transactions are liable for fees. Instead of paying the issuer interest and fees become a smart consumer and take advantage of the best cash back offers so that credit cards can result in a profit rather than a loss.